Leadership In Russian Food Retail

1
Leadership In Russian Food Retail

• July 2008

2
Russian Food Retail Market
Total Food Retail Market Size in 2007, USD million
Modern Format as of Total Food Retail Market
(1)
Top 5 Players
Sources Business Analytica, Planet Retail,
Rosstat. (1) In cities with population of above
100,000 inhabitants only
3
Russian Food Retail Market

• Russian consumer spending growing strongly
• 2003-06 CAGR of 29.5 and growing to 32.3 in
  2007
• The total Russian food retail market grew at
  28.1 CAGR between 2003 and 2006 (in value terms)
• The market grew by c.31.0 in 2007 over 2006
• Modern Retail Format growing faster than total
  food retail market in Russia
• ...2003-06 CAGR of 52.1, 2007 growth of 49.4
• on the back of strong organic growth, decreasing
  share of traditional food retail formats and
  market consolidation
• By end of 2007, modern trade formats accounted
  for only c.32.6 of the total market(1)
• In 2007, Top-10 Russian food retailers combined
  revenues capturing only c.13 of the total
  Russian food retail market (in value terms)

Consumer Spending
2006-07 Growth of c.32
USD 578 bln
2003-06 CAGR of c.30
USD 437 bln
USD 201 bln
Russian Food Retail Market Evolution
Modern Food Retail Format
Traditional Market
2006-07 Growth of c.31
USD 190 bln
2003-06 CAGR of c.28
USD 145 bln
33
25
USD 69 bln(2)
67
13
75
87
Sources Business Analytica, Rosstat (1) Total
food retail turnover in cities with populations
of above 100,000 people (2) Total Russian Food
Retail Market Size
4
X5 Retail Group
a Clear Leader in the Russian Food Retail Market

• X5 today..
• 2007 net retail sales excluding Karusel
• USD 5,284 million, USD 3,744 million in H1 2008
• 2007 net retail sales including Karusel (1) -
  USD 6,115 million, USD 4,303 million in H1 2008
• 991 company-managed stores in Russia and Ukraine
  including Karusel
• In addition, 710 stores operated by X5s
  franchisees across Russia and in Kazakhstan
• Over 791 thousand sq. m. of net selling space
  including Karusel
• Approximately 605 million customer visits to X5
  in 2007,
• over 367 million customer visits in H1 2008

FY 2007 Retail Revenue Growth
Sources Business Analytica (1) on pro-forma
basis
5
Company Strategy
Sources X5 Retail Group, Prospectus X5 Retail
Group April 2008
6
Strategy Diversified Across Formats
Soft DiscountStores
2007 LFL(2) Performance by Format
Based on RUR-denominated gross sales
Data as at 30 June 2008
22
20

• 762 stores
• Total net selling space 389,321sq. m.
• Average assortment 3,500 SKUs

19
17

• Sales per sq. m. USD 11,375(1)
• Fresh perishable products 46

Supermarkets
Data as at 30 June 2008

• 190 stores
• Total net selling space 205,333 sq. m.
• Average assortment 15,000 SKUs

H1 2008 Sales Break Down by Format

• Sales per sq. m. USD 12,959(1)
• Fresh perishable products 41

Net Retail Sales excluding Karusel USD 5,284 mln
Net Retail Sales including Karusel USD 6,115 mln
Hypermarkets
Data as at 30 June 2008

• 39 stores, including 23 Karusel
• hypermarkets
• Average net selling space Compact 4,000 sq.
  m.Full-size 5,000-10,000 sq. m.

• Average assortment Compact 30,000
  SKUsFull-size 40,000-60,000 SKUs
• Sales per sq. m. USD 8,909(1)
• Fresh perishable products 40

Supermarkets
Hypermarkets
Karusel hypermarkets
Soft Discounters
(1) As at 31 December 2007 (2) LFL retail sales
are calculated on a pro-forma basis, i.e. by
including acquired Pyaterochka stores for the
full year in each of 2006 and 2007
7
Strategy Diversified Across Geography
...National Presence With Leading Position in
Moscow and St. Petersburg
2007 Net Retail Sales by Region (1)
2007 Sales, EOP Store Locations and Selling
Space(1)
FY07 Net Retail Sales of USD 5,284 million
(2)
(1) Excluding Karusel (2) Includes City of
Moscow, Moscow and Yaroslav regions
8
New Store Openings
... Through Expansion Into The European Part Of
Russia Urals
Key priority area for expansion

• CapEx for 2008 expected to be USD 1.2 - 1.4
  billion (excluding Karusel)

(1)
X5 Existing Operations
New regions to be entered in 2008
Source Business Analytica, Rosstat (1) As at 30
June 2008
9
Selective Acquisitions
Of Small Chains and Successful Franchises in
Attractive Regions of European Russiaand Urals
EV(USD mln)

Selling Space (sq. m.)
Date
EV/Sales
Company
Region
Real Estate in Owner-ship (sq.m.)
of Stores
Urals
11 (24)
83
31,100
Franchisee
June-08
0.4x
14,700
Rationale getting strongpresence in a new
region, establishing platform for further organic
development
9,300
28
18
Perm
Franchisee
Mar-08
0.3x
1,900
12,352
Central
109
22
20,000
Korzinka
Dec-2007
0.7x
Urals
NA
40
13,800
Franchisee
Jan-07
NA
3,700
11,700
26 (1)
63
Moscow
Strana Gerkulesia
Dec-07
0.8x
gt11, 000
Rationale obtaining high-quality locations in
the areas with limited real estate availability
Moscow
200
17
14,000
Mercado
Oct-06
NA
50,600

• 26 stores were operational in 2007, three
  additional stores are scheduled for opening in
  2008 (29 stores total selling space of 12,900
  sq. m.)

10
Ensuring Best-In-Class Execution
to Drive LFL Sales and Continuously Improve
Sales Densities
Group 2007 and H1-08 LFL(1) Performance
Pricing Initiatives
Based on RUR-denominated gross sales

• Price offers for a group of SKUs during a certain
  period
• In/out actions
• Packaged offers

27
25
20
18
11
Assortment

• Increasing share and improving quality of fresh
  perishable products(2)
• Non-food
• Private label
• Increasing self-service, including pre-packaging

2007
Improving Loyalty Programs
Merchandising PR

• Loyalty cards
• Social programs

• TV
• Mass media
• Billboards
• Leaflets (both in-store direct mailing)

(1) LFL retail sales are calculated on a
pro-forma basis, i.e. by including acquired
Pyaterochka stores for the full year in each of
2006 and 2007, excluding Karusel
11
Enhancing Operational Efficiency

• Growing scale means more favourable purchasing
  terms compared to competitors
• Bonuses received from suppliers effectively
  reduce the cost of good purchased and support
  gross margin
• Centralized purchasing is in place to optimize
  buying benefits

Supplier Relationship Enhancement

• Increase participation of non-food items
• Identification of low turnover products
• Working capital improvement

Assortment Improvement

• Long-term goal to have share of private
  labelproducts of
• 40 50 in soft discounters
• 20 25 in supermarkets and hypermarkets

Increased Private Label Sales
12
Enhancing Operational Efficiency
Supplier Relationship Enhancement Logistics
Infrastructure Development
Supplier Relationship Enhancement
Logistics Infrastructure Development

• Total DCs area operated by X5 at 30 June 2008 was
  appr. 189 thousand sq.m.
• Current average level of centralization for the
  total Company is appr. 50
• X5 is implementing an ambitious long-term project
  to build an integrated logistics infrastructure,
  based on a network of multi-format distribution
  centers located in all big cities in the regions
  of X5 operations
• Expected results
• Improved labor productivity
• Decrease in inventories
• Support for promo activities and private label
  development
• Support for fresh offers

• Relationship with suppliers one of our key
  competitive strengths
• X5 is an attractive partner for both national and
  local suppliers on the back of growing sales
  volumes and expansion throughout the European
  Russia and the Urals
• More than half of X5s supplies are negotiated
  centrally
• At 31 December 2007 X5 sourced from approximately
  4,000 suppliers
• X5s ten largest suppliers account for
  approximately 10 of total purchasing

Creation of a professional distribution operator
for retail in Russia
13
Upgrading IT Systems

• X5 has chosen SAP for Retail as its enterprise
  resource planning system to provide strong
  platform for future growth
• To facilitate control over processes ranging from
  strategic planning to store level operations
• Introduction of system to be conducted in stages
• First stage (expected to complete by 2009) to
  create technology platform to manage retail
  operations (purchasing, logistics, inventory and
  accounting)
• Future steps to include functional financial
  models

14
LFL(1)
Gross Margins
of net sales
Based on RUR-denominated gross sales
Number Of Stores
Net Selling Space
Thousand square meters

• LFL retail sales are calculated on a pro-forma
  basis, i.e. by including acquired Pyaterochka
  stores for the full year in each of 2006 and 2007

15
...Strong Growth Combined With Highly Attractive
Margins
(1) EBITDA calculated by adding depreciation and
amortisation of USD 141.7m in 2007 and USD 86.4m
in 2006
p. 15
16
... And Strong Cash Flow Generation
2007
2006
USD mln
427.5
316.9
Net Cash From Operating Activities
(898.8)
(40.9)
Net Cash (used in) / from Investing Activities
470.0
(138.1)
Net Cash (used in) / from Financing Activities
12.8
0.2
Effect of Exchange Rate Changes on Cash
11.5
138.1
Net Change in Cash Position
253.7
218.0
Short-Term Debt
1,464.7
949.1
Long-Term Debt
1,718.4
1,167.1
Total Debt
179.5
168.0
Cash and Cash Equivalents
999.1
1,538.9
Net Debt
3.4x
3.2x
Net Debt / EBITDA
(218.5)
(437.1)
Net Working Capital net of Short-Term Debt
17
H1 Operating and Financial Results
Continuing Strong Performance

• Growth (H1-2008)
• 61 increase in net retail sales excluding
  Karusel year-on-year in US dollar terms to USD
  3,744 mln
• Karusels net retail sales grew 63 year-on-year
  to USD 559 mln
• X5s LFL sales excluding Karusel grew 27 (in
  Rouble terms)
• Karusels LFL growth totaled 35
• In H1-08 X5 added 100 new stores (50,631sq. m. of
  net selling space) organically and further 23
  stores (132,014 sq.m. of net selling space)
  through the acquisition of Karusel
• Profitability (Q1-2008), excluding Karusel
• Gross margin of 25.7
• EBITDA margin of 9.0
• Net margin of 4.8

H1 2008 LFL Breakdown per Format
Based on RUR-denominated gross sales
Basket
Traffic
35
30
28
25
23
Including Karusel


Excluding Karusel
18
Karusel Acquisition
...Compelling Investment Proposition
Significant Step-Up in Scale of X5s Business

• 1 Position in Russian Food Retail by Revenues
  Increasing Lead over Closest Competitor by over
  60(2)

Immediate Position as a Leading Hypermarket
Operator

• Leading Position in the Fastest Growing Food
  Retail Format in Russia

Excellent Geographic Fit

• Complementary to Existing Regional Presence -
  Opportunity to Leverage on Existing Operations

Acquisition of High Quality Assets

• Owned Stores at High Quality Locations

Financially Compelling Acquisition

• Significant Synergy Benefits

(1) Based on 2007 PF revenues of X5 including
Karusel
19
Transaction Highlights
TransactionStructure

• Acquisition of 100 of shares in Formata Holding
  BV, owner of the Karusel Hypermarket chain

• Value determined by formula in the Call Option
  Agreement
• Equity value c.925 million
• Additional 15 million paid to acquire certain
  intellectual property for use in the business
  including Karusels business platform, brands,
  patents, licenses, IT and other relevant
  documentation

Transaction Value
FundingStructure

• c.25 of equity value paid in X5 shares(1) and
  remainder in cash

Timing

• Transaction closed on June 26, 2008

• 6,986,020 X5 GDRs paid at a provisional value of
  USD 33.10 per GDR

20
Karusel Overview
5 Hypermarket Operator in Russia
Business Highlights

• 5 hypermarket operator in Russia both by sales
  and net selling space as at 31 December 2007
• Strong presence in key markets
• 23 stores located in St. Petersburg North West
  region, Moscow region, Yaroslavl, Nizhny Novgorod
  Dzerzhinsk,
• Volgograd, and Izhevsk
• Extensive real estate portfolio and land bank
• All existing hypermarkets as at 30 June 2008 are
  owned
• Several stores under construction
• Strong historical revenue growth and attractive
  margin structure

Note Figures as at 31 December 2007
Cumulative Store Opening Schedule
Net Sales, Margins Store Count
2004
2005
2006
2008
2007
Sources Companies public information, Business
Analytica and X5 estimates
21
Significant Step-Up in Scale of Business
2007 Share in Top-10 RetailersKarusel(1)
2007 Net Selling Space
000 sq.m.

• The combined X5 and Karusel now has a market
  share of 25.1 in the Top-10 Russian food
  retailers including Karusel, which translates
  into 3.2 market share in the total food retail
  market of Russia(2)
• Significant lead ahead of its closest competitors
  over 60 gap in terms of PF 2007 sales

Sources Companies public information, Business
Analytica (1) Share of top 10 food retailers and
Karusel in Russia in 2007 (2) In accordance with
Business Analytica report - in 2007 the size of
the total food retail market of Russia amounted
to USD 190 bln
22
Karusel Acquisition
Evolution of Russian Modern Food Retail(1)
Russian Hypermarket Operators Store Count
2003
2010F
(2)
(2)
Note Figures as of 31 December 2007
Russian Hypermarket Operators Sales(3)
USD mln
13.3
45.4
Share of modern formats in Russian food retail(1)
Discounters
Supermarkets
Hypermarkets
Note Figures as of 31 December 2007

• Enhancement of presence in hypermarkets
  portfolio of 39 hypermarkets post Karusel
  acquisition
• 100 owned stores in high quality locations
• Significant synergy benefits

Source Business Analytica (1) For cities above
100,000 inhabitants (2) One additional Karusel
hypermarket was opened in March 2008, one
additional X5 hypermarket was opened in February
2008 (3) Based on net sales
23
Excellent Geographic Fit
St. Petersburg
St. Petersburg North West region 15 stores
in operationand 1 store under construction
Moscow region 4 stores
Pskov
Veliky Novgorod
Yaroslavl 1 store opened in a test mode
Cherepovez
Tver
Vologda
Yaroslavl
Nizhny Novgorod Dzerzhinsk 2 stores
Smolensk
MOSCOW
Kostroma
Kaluga
Bryansk
Ivanovo
Vladimir
Izhevsk 1 store
N.Novgorod
Kirov
Tula
Orel
Ryazan
Kursk
Yoshkar-Ola
Lipetsk
Perm
Arzamas
Cheboksary
Belgorod
Izhevsk
Saransk
Kazan
Penza
Tambov
Voronezh
Ekaterinburg
Ulyanovsk
Toglyatty
Ufa
Saratov
Samara
Tyumen
Chelyabinsk
Rostov-na-Donu
Yekaterinburg 1 store under construction
Volgograd
Novorossiysk
Orenburg
Krasnodar
X5 Existing Operations
Volgograd 1 store
Sochi
Elista
Stavropol
New regions to be entered in 2008
Astrakhan
Karusel Hypermarkets

• Almost 20 addition to X5 net selling space based
  on 2007 results
• Karusel stores complement X5s existing regional
  presence, maximizing efficiency
• X5 asset base will be enhanced through the
  addition of high quality locations and ownership
  of Karusel stores

Sources Karusel public data
24
Karusel - Significant Synergy Benefits
Synergies
Sources
Sales

• Improvement in assortment
• More competitive pricing active promotions

• Improvement in sales per sq. m. of existing
  Karusel stores through
• Rebranding
• Layout improvement

GrossMargin

• Enhancement of X5-Karusel combined purchasing
  power better purchasing terms/contracts
• Leveraging on X5 logistics infrastructure

EBITDA

• Optimization of management administrative
  overheads
• Retail operating expense leverage economies of
  scale
• Better non-commercial purchasing

Total integration costs expected to be USD 150
mln in 2008 and 2009
25
USD 1 bln Rights Offering
... Successfully Completed in May to Finance the
Acquisition of Karusel
Offering Structure

• USD1,026 mln offering of rights to eligible(1)
  existing GDR holders to acquire new GDRs (48.1m
  new GDRs at USD 21.32 per new GDR (ratio of 29))
• New GDRs which were not subscribed for by the end
  of the Subscription Period were offered for sale
  by the underwriters in the Rump Offering
• Rights to acquire GDRs were not be tradable,
  however there was a make-whole provision
  resulting from the placement of the Rump to
  compensate non-participating shareholders

Results

• Subscription rate - 96.5
• The unsubscribed portion of the Offering (3.5)
  included the Companys Treasury Shares (1.74)
  that were not eligible to participate. Excluding
  them, subscription rate would have been 98.2
• The unsubscribed GDRs were placed in the Rump
  Offering at a price of USD 35.0 per GDR
• As a result of the Offering, X5s gross proceeds
  totaled USD 1,026 million
• An amount of USD 22.96 million (based on the
  difference between the Rump Offering price (USD
  35.0) and the Subscription price (USD 21.32) was
  paid to unsubscribed shareholders
• To satisfy high investor demand in the Rump
  Offering, the Company sold its Treasury Shares
  (3,769,113 GDRs) at the same price, generating
  additional proceeds of USD 131.9 million

• The gross proceeds of the Offering used to fund
  the cash portion of the purchase price for
  Karusel
• The remaining amount to be used for rebranding,
  restyling and integration of Karusel hypermarkets
  and for general corporate purposes

Use of Proceeds
(1) Qualified investors within the meaning of
relevant implementation of the Prospectus
Directive outside of the US (under Reg S) and
qualified institutional buyers in the US
(pursuant to Rule 144A)
26
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